So what is happening to the price of gold and silver? If anyone has taken a look at the price lately, silver has fallen from roughly $45 per ounce to roughly $30 per ounce, while gold has fallen from roughly $1800 per ounce to roughly $1600 per ounce. This is quite a concerning fall for investors, especially if they don’t know why this is happening.
Gold and silver used to be used in the actual currency (silver more than gold), but now they are typically used as a backup for the monetary system and the economy. This means that if the population feels safe and secure with the economy as well the paper we now use for currency, the price of gold and silver drops because there is little or no demand for it. There is little use to put your money into something else when the current investment is performing well, which in this case is the economy. However, when the economy starts to sink and people begin to lose faith in their paper dollars, they will generally put their money into something which will protect their purchasing power even better, and since the price of gold and silver is directly proportionate to the amount of inflation, it can be a very wise investment if you know what you are doing. High gold and silver prices generally mean either the destruction of the dollar or that people are losing faith in the dollar, and both of these factors will only drive the price up even higher. But keep in mind that this spike isn’t permanent by any means; gold and silver prices will rise and fall just like any other investment so it is so important to do your own research before seriously investing into something.
The price of these precious metals spiked in 1980 and then fell afterwards. Since around 2007-2008 when the recession started hitting, the price has been steadily climbing and this year has yielded extraordinary returns with the exceedingly high price of everything around us (increasing inflation) and more and more people losing their jobs as a direct result of the economy taking a hit. So why have the prices of gold and silver suddenly dropped, and what does this mean for the economy?
There can be many reasons for this type of drop but I think it mainly entails the Special Purpose Vehicle (SPV) which is very similar to the US governments Troubled Asset Relief Program (TARP). The purpose of the SPV is to buy up the European bad debt of Greece, Italy and Spain so that they have enough money to begin paying back some of the debts they owe.
When it was assumed that these countries would not be bailed out, the price of gold and silver began shooting through the roof since people became afraid of what would happen to their money and their purchasing power. Ever since it was announced that the SPV will be bailing out these countries instead, these precious metals have taken a plunge as people rush back into currency related investments such as stocks, bonds, mutual funds, as well as straight up cash. This is affecting the price of not only the precious metals, but many other raw commodities as well.
So what does this mean for us? I personally don’t believe the economy is getting any better, nor do I believe that this will fix anything over the long term. The way I see it, this is simply putting a bandaid over a serious wound. I believe that in the end, this will result in even higher taxes as well as higher inflation that the rest of us have to pay over the course of a few generations. However, the good news is that the bailout will likely drive the price of these precious metals down even further, creating a buying opportunity for those who know how to use this to their advantage.
My advice for you is to not be relieved just yet; keep being prepared because as far as I can tell, this is just a temporary solution for a long term problem. Keep educating yourself on financial matters and listening to the news; it’s not only good to be informed of what is going out on there, but also be aware of how it will ultimately impact you and what you can do about it.
The image used in this post is taken from Image: Idea go / FreeDigitalPhotos.net
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